Saturday, July 02, 2016

June 23 2016 was a day that sent the global markets into turmoil thanks to the British Public taking the decision to leave the European Union in a referendum. The once almighty British Pound took a massive tumble and other financial markets followed suite.

My Facebook page became filled with comments from friends in the UK. The younger ones, who were mainly my sister's friends who had grown up seeing me as an older brother, were horrified that the country had descended into a racist mess, though a few of them celebrated their "Independence." Of my British friends who are in business, like Terry O'Connor, the CEO of Courts were mainly disappointed, though there were exceptions, most notably Neil French, the former Global Creative Head of the WPP Group.

There is no doubt that the after effects of "Brexit" are going to be felt around the world for sometime to come and there's going to be plenty of discussions on the internet. So, what's going to happen.

Firstly, its clear that the European Union ("EU") has an issue. While I believe the common goals of the EU are on the whole good, it should be clear to everyone that whatever benefits of being in the EU are, they have either not been felt by the man on the ground or at least not communicated. When the "Brexit" vote became clear, there was talk sufficient chatter going around that the French, the Dutch and others would follow and demand an exit to the union.

The key issue was of course, the issue of immigration. The key supporters of the exit vote in the UK were white working class people who had been cut out from traditional jobs. As one of my favourite English boys used to say, "When I was unemployed, I blamed it on the Poles." Its all very well to talk about your export market and being part of the largest trading block in the world when you are trader in the City of London moving billions around with a click of mouse button. It's something different altogether when you are from a working class suburb and you've been out of work for the last year because all the jobs you used to be able to do are now taken by people who are different from you and willing to work harder and for less.

The second point that the EU needs to look at is the issue of excessive regulation. As one Dutch guy said, "They even have laws governing what type of bananas can be sold." Such regulations lead to the issue of sovereignty and more importantly what does the EU want to be. Is it a super trading block or a super national state?

When the EU was started as the European Economic Community (EEC), there was one overriding aim - to prevent another war from breaking out in Europe through closer integration. World War 1 and 2 were partly built on a "Franco-German Rivalry" (Bismark vs Napoleon III), so the founders of the EEC reasoned that if the French and Germans stopped fighting and trading, they'd get used to the idea of being prosperous by working together, they would never go to war.

That objective has long been fulfilled. Within a generation, the European continent has gone from nobody being able to conceive of lasting peace on the continent to nobody being able to conceive of a war between two European states. For Germany, the EEC and EU has been a salvation - it has allowed Germany to transform from being a militant aggressor to the benign sugar daddy of the continent.

However, while people are happy to trade with each other, it becomes a different story when you talk about imposing culture from elsewhere. As HSBC's brilliant "World's local bank" campaign proved, the more global we become, the more attached we become to things we are familiar with. EU regulations on cheese, bananas and chocolates only made people more attached to their "local" items.

Ironically, this point is best illustrated by the UK itself. The UK or Great Britain is not one country but four that have become one superstate united by a common language, a common currency, common laws, a common sovereign and an increasingly common culture. The superstate known as the United Kingdom has existed far longer than the EU, where people have had longer to live side by side in each other's different kingdoms. Yet, despite everything, the Scots still see themselves as Scottish, the Welsh as Welsh and so on. The Scots have even gone as far as to demand various referendums to get out of the UK. If you look at the "Brexit" campaign, you'll note that the same arguments were used in the Scottish independence referendum.

The EU needs to sell itself better to the man in the street and it needs to do some internal soul searching about what it wants to be. The problem remains, the EU was a project conceived by the people at the top with very little input by the people from the bottom. Somehow, the bottom needs to be persuaded to follow the top.

Britain will survive as it always has. The British found a way of surviving without their Empire. Instead of being number one in the world, they managed to become very successful being being the best friend of the new number one (the Americans). At the same time the British joined the EU and became a fairly active member.

While nobody doubts that the UK will continue to survive, the question remains, "Will Britain be a significant player on the global stage." The British might want to take a look at Japan.

Japan was an incredible success story. At one stage, when world looked to Japan as a new economic leader. Two decades later, the Japan is now a buzzword for stagnation. While still prosperous in many ways, it is clear to the rest of the world that Japan doesn't really lead anything at all. I remember one of my favourite journalist saying that it was lucky that former Prime Minister, Juichiro Koizumi use to visit the Yakasuni Shrine because it was the only way people really cared about what went on in Japan.

The British have certain advantages that Japan doesn't have. The English language remains the world language and the British have been far more open to the outside world than the Japanese.

However, there are several issues. Firstly, one of the key reasons for rejecting EU membership was immigration. A few people who were interviewed had argued that they objected to the EU's liberal policies on accepting Muslim migrants from places like Syria but were perfectly fine with the more educated ones from Europe. Unfortunately, rejecting EU membership means not only keeping out Syrian refugees but the well educated ones from Western Europe.

The British have been very successful of being the middle man between great powers. One of the reasons why the City of London has become the world's financial centre was because American banks looking to establish a base in EU could do it in London. Likewise, European banks that wanted to be in an English speaking country, they merely had to cross the channel.

Britain was the English speaking gateway into the world's largest trading block. It was the ideal place for the Americans, Australians, New Zealanders, Chinese, Indians and so on to start a venture in the EU.

Without EU membership, Britain loses the very thing that made it relevant to foreign investors. For sure, Britain will still get foreign investment but it's not likely to be what it used to be. Furthermore, Britain will now enter trade negotiations on its own rather than as part of a big block. It won't make a difference it you are dealing with Singapore. However, size helps when you deal with China, India and the other large markets.

Britain will survive Brexit but it will have to get used to doing so as a lesser player on the global stage. As long as her people can get used to being part of a normal nation, that may be no bad thing.